Thursday, November 20, 2008

Henry Blodget: Deal Or No Deal!

On his Silicon Valley Insider website today, former Merrill Lynch analyst Henry Blodget -- who in July offered to buy the Times's digital operations for $1 billion -- has reduced his offer to $400 million.

Blodget's original bid was bold and serious: he proposed that the Times buy him out, and then spin off both his company and NYT Digital in a plan that would bypass the need for shareholder approvals. Perhaps it seemed like a joke to Times management at the time, but now that the stock has dropped from $12 (when he pitched his plan) to $6 (at this moment) maybe it's worth taking more seriously.

Here were the two main components of the original Blodget proposal:

#1. Sign a contract with you that allows us to reprint all New York Times content for three years. This will give us some time to build our own news organization, one unencumbered by the various cultural, economic, and contractual baggage that is currently preventing you (and other papers) from saving yourselves.

#2. Immediately make offers to the 20% of your journalists and editors that we think can make the transition to digital (24/7 real-time blogging). These folks won't be hard to find, given that some of them are writing excellent blogs already. (Andrew Ross Sorkin, Floyd Norris, David Carr, Joe Nocera, Gretchen Morgenson, Brian Stelter, Saul Hansell, Paul Krugman, Landon Thomas, and a few dozen other folks jump to mind.) By the way, we don't mind if these folks continue to distribute their stuff in the paper, too, so don't worry about losing them. In fact, that would be great exposure for us.

The appeal of Blodget's plan, in part, was that it represented a 33% premium over the value of the entire New York Times, just for the website. He even had a means to make the plan work without legal fees or shareholder approval:

We'll agree to let you acquire us for, say, $100 million of New York Times stock. Then, in a simultaneous closing, you can spin us and New York Times Digital out as a separate public company--via a special dividend to shareholders. (You can load us up with enough debt to make the numbers work, and then we'll convert it to equity).

Blodget's offer may have been tongue-in-cheek, but his perceptions of the Times's dire straits have been dead-on. He has posted regularly about the company's cash crisis -- the fact that its bank credit lines are in jeopardy as the stock price plummets and the company's assets decline in value. Like many, Blodget worries that the Times may have so mismanaged its current business that it won't survive the next six months.

That's why, with the stock dropping by the minute -- as this post is being written at 3:50 p.m., the stock has reached a new low of $5.74 a share -- Blodget implores Times management to maximize the value of its greatest asset, its website.

"So how about it, Janet and Arthur?" Blodget wrote in July. "$1 Billion. More than a third of the current enterprise value of your entire company--just for the web site! You get to keep the paper, the building, the Red Sox, the Boston Globe. It's the deal of a lifetime!"

Maybe not the deal of a lifetime at today's offer of just $400 million, but it might be worth considering before Blodget drops the price yet again. Or before the Times declares bankruptcy.

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